The Hong Kong Stock Exchange (HKEX) achieved a milestone in the first quarter of 2025, reporting a record-breaking performance. The exchange witnessed a surge in trading activity, with the average daily turnover hitting $243 billion, marking a significant increase year over year. This remarkable growth was primarily attributed to the notable rise in Southbound Average Daily Turnover (ADT) to HK$110 billion, reflecting a substantial uptrend both year on year and quarter on quarter.
Analysts at CGS International highlighted the structural shift in trading patterns, with Southbound trading accounting for 23% of the total ADT. This shift was viewed as a reflection of long-term market dynamics rather than short-term speculation. Notably, Southbound net purchases saw a substantial increase of $439 billion, showcasing a growing investor preference for Hong Kong-listed securities amidst global uncertainties, including US tariff policies.
Furthermore, CGS International emphasized a strategic move in liquidity away from U.S.-listed Chinese ADRs, with an increased proportion of turnover on HKEX for secondary-listed companies. This shift was predominantly driven by concerns over ADR delisting risks, indicating a shift in investor sentiment towards Hong Kong as a more stable investment destination.
Despite facing geopolitical challenges, CGS International maintained a positive outlook on HKEX’s performance, reaffirming an “Add” rating with a target price of $490. The firm cited strong ADT growth as a key driver for anticipated net profit growth in the coming years. Potential catalysts for a re-rating included the influx of high-quality IPOs, favorable policy developments, and better-than-expected performance of the Hang Seng Index, while risks included lower interest rates impacting investment income and escalating geopolitical tensions.
Looking ahead, HKEX’s record-breaking performance in Q1 2025 underscores its resilience and attractiveness to investors amid a complex global economic landscape. The exchange’s strategic positioning, coupled with the growing trend of Southbound trading and shifting liquidity preferences, highlight the evolving dynamics of the financial markets. As HKEX continues to navigate challenges and capitalize on opportunities, its role as a key player in the global financial ecosystem is set to expand, offering investors a robust platform for growth and diversification.
